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Wells Fargo Banker Charged With Insider Trading

David Paul Ohmer/flickr

The Securities and Exchange Commission has charged an investment banker at Wells Fargo with leading an $11 million insider trading ring while he worked in Charlotte.

John Femenia had access to a lot of confidential information through his job at Wells Fargo. He’s an investment banker (or at least was), and he got the scoop on several mergers because his bank helped with the financing.

That information is as good as money. Mergers often drive a company’s stock price up, so if you buy it before that happens – you're setting up for a nice profit.

But if the information you used to make that decision isn’t public, that profit is illegal. That’s what the charge against Femenia and nine others is all about. The SEC said he tipped off a friend who tipped off another friend, and they all made money.

"Most people believe that the insider trading case we see is the tip of the iceberg," said Duke Law professor James Cox.

And think about it: it’s not like Femenia is the only guy at a bank who knows about an upcoming merger. Cox researched insider trading and presented his findings to the U.S. Senate in 2006.

"We found depending on the nature of the event, almost 40 to 45 percent of the total price increase that accompanies the announcement of a merger occurs before the announcement," Cox said.

That means tons of people are already buying the stock before they’re supposed to know it’s going to be a lot more valuable.  Cox does not think all those people are just lucky.

But he said insider trading is hard to prosecute because people often obscure their trades and keep them small.

"You can be a pig, but you can’t be a hog," Cox said. "That is, you can take little, small profits, which many people do, and maybe share with friends, and you’ll fall under the radar screen."

Cox said the case against Femenia falls in the "hog" category – an $11 million profit off multiple insider trades with the same group of friends.

Wells Fargo said in a statement that Femenia has been placed on administrative leave and the bank is fully cooperating with the SEC.